Tax time is nearly here again. If you own a property as an investor, you might already be thinking about preparing for the end of financial year. The good news is there are many ways to reduce annual amounts, and deductions can sometimes be the difference between your investment having a positive or negative cash flow.
Here's a list of the key deductions you should be considering, or at the very least asking your accountant about.
Rental advertising: Regardless of whether you're finding a first tenant, or re-letting, the costs associated with online advertising, print media, flyers and brochures, or a sign can be claimed against property income in the year you paid them.
Loan interest: One handy item to remember is that interest on investment loans and bank fees spent servicing the same loan are tax deductible. It's important to realise however, that you can't claim repayments, or interest on the whole sum if you refinanced part of the loan for private purposes.
Council rates: These can be deducted in the year they were paid, as long as you're only doing so during the times in which the property was rented.
Land tax: It's OK to deduct Land Tax as long as you have a rented dwelling on your property. Do realise that land tax is not uniform nationally as it is a state-based tax, so check your situation locally or, if unsure, chat to your accountant.
Strata fees: Properties on strata title are allowed to claim the cost of body corporate fees. Do be aware that your fee includes maintenance and garden expenses. It can only be claimed once, so no deducting separately later.
Building depreciation: This deduction is very dependent on when your property was built and its age. Any property constructed prior to 16th September 1987 can't have original construction costs claimed on it, although after that date you are allowed to claim 2.5% depreciation a year for 40 years.
Appliance depreciation: Just like building depreciation, this has set dates against whether you can receive this deduction. Only people who purchased a property before 7.30pm on 9th May, 2017, and installed appliances prior to July 2017, can claim deductions on new or second hand appliances. Rules also apply to depreciating an asset that another owner or person may have already processed.
Repairs and maintenance: Repairs relating directly to wear and tear can be deducted, such as roofing after a storm or an essential appliance repair. Repairs where full replacements are done to appliances cannot be deducted and the rule above applies.
Pest control: Eradicating furry friends and creepy crawlies is also tax deductible. It's also a deduction that can be made by landlords or tenants, depending on who paid for the service.
Garden and maintenance: Can you deduct the cost of upkeep and replacement of plants and structures? You most certainly can. The one rule here is that any works or plants that add value to the property cannot be deducted.
Insurance: Protecting your investment with insurance is a claimable item. If you can't remember your premiums, ask for a statement from your provider or insurance broker.
Bookkeeping costs: Direct costs related to preparing tax returns and expenses as they relate to the property are deductible, however it's essential to realise personal income tax preparation is not – although that can be claimed separately against your personal income tax return.
Travel costs: While travel costs to and from an investment property used to be deductible for all, it should be noted this is no longer the case. Only excluded entities and landlords involved in an active property investment business are permitted to receive these.
Agent's fees: Property management costs are deductible and play a role in ensuring your investment is well maintained, rents are at good market rates and professional, communicative relationships with tenants are maintained.
Stationery and phone costs: Just like any business, the material you use and the calls you make to run your investment can be deducted.
Legal expenses: While this deduction may be subject to change, under the current government, if you need to evict a tenant and incur losses as a result, any costs incurred relating to preparing legal documents or going to court can be treated as a tax deductible claim.
Final tip: Last of all, a wise word from someone actively working with property investors every day: "One of the many benefits to engaging with a Property Management professional is that at the end of every financial year you'll receive a financial summary of all income and associated maintenance and management costs. First National Real Estate supplies these to all our landlords, ensuring vital detail covering income and expenses are captured each Financial Year. Best of all, First National's property management services and streamlined financial reporting is all a tax deductible expense." – Sam Dunne, Head of Property Management.
We hope you've found our tips helpful. Other good things to bear in mind when managing property taxation are staying organised and maintaining good documentation, setting rents at levels that are high enough to be deducted against (no mates rates), being careful what you claim regarding holiday homes (exclude personal use), and not missing a trick with the many deductions listed above. Rules and legislation can change suddenly also, so make sure you, or your accountant are across the most recent changes as they happen.
The following advice is of a general nature only and intended as a broad guide. The advice should not be regarded as legal, financial or real estate advice. You should make your own inquiries and obtain independent professional advice tailored to your specific circumstances before making any legal, financial or real estate decisions.
By Tamara Wrigley, Carolans First National Real Estate Sunshine Coast & Hinterland